Your financial roadmap starts where you are
If the shortest distance between two points is a straight gayly forward line, not only should you know where you want to go, but you need to know WTF you are. That’s why your financial roadmap starts here, at this point where X marks the spot.
X always marks the start of your financial roadmap
We’re SciFi nerds. When we’re maxed out on SciFi movies on Netflix, we’ll watch space science documentaries. We may have even been known to watch a space alien conspiracy doc or two.
We’re not stable geniuses when it comes to science. We’re just fascinated by space and everything that is and might possibly be.
Last night we watched a good documentary on NASA’s Voyager (V’Ger) Program. The stated missions of both Voyager I and Voyager II were to study Jupiter and Saturn. That’s what the public was told to gain our interest. That’s what Jimmy Carter was told to get his Johnny Hancock.
On the DL, several NASA scientists had a secret mission: to reach the outer edge of the Milky Way. They figured if they planned correctly and maximized the alignment of our planets over the next 30 years, they’d wiz by Pluto (which at the time was a planet then wasn’t and now is again) and reach the outer edge of our galaxy.
Well, in 2012, Voyager I entered interstellar space, meaning it left the Milky Way. It won’t pass another star for another 44,000 years – nearly as long as homos homo sapiens have existed.
What’s the point of me nerding out on this nerdy doc? There are several reasons why Voyager I is now farther away from Earth than even the smartest NASA scientists expected. One critical reason is NASA knew Voyager I’s starting point. The Earth, along with Jupiter, Saturn, Uranus and Neptune had to be in perfect alignment for there to be any hope of getting V’Ger past Neptune.
X marks the start of your financial roadmap
Now let me ask, “How much money do you make a year?” No, not that nice, round figure your boss quoted during your annual review. How much money do you bring home after taxes and deductions?
That’s the number I want.
Realistically, we know our quoted annual salary isn’t near what we bring home. We know we pay taxes before our pay hits our account. Don’t forget the escalating healthcare cost deducted from our paycheck.
However, we still live and spend as if that plump, round figure (what? huh?) is what we bring home.
So, what’s the amount of money you bring home every other week after you subtract your medical, dental and other benefits after you pay federal taxes, Medicare and other expenses and after you deduct 401(k) contributions? What’s that smaller number?
That number is the number you need to live on every two weeks and the start of your financial roadmap.
Your current financial roadmap is more than your pay
Now you get the connection between NASA’s Voyager Program and your pay. You’ll understand that to completely and accurately chart a successful financial roadmap, you need your entire financial picture . . . the whole thing and not just what you want to see.
Getting this complete picture starts with calculating your true take-home pay. When you know your true monthly take-home pay, subtract your true monthly living expenses from our Spending Analysis Worksheet that you can download here.
According to this math, do you have money left over each month? Are you in the negative or the positive?
Next, total all your debt. This includes all your credit cards, the debt you owe family or friends, your car loans and any other loans you’ll repay within five years. These are your short-term liabilities. Because they’re liabilities, we’ll soon create a plan to pay them off.
Once you’ve calculated your short-term liabilities, add up your long-term liabilities. These include your mortgage, home equity lines of credit (HELOCs), student loans and other loans that’ll take five or more years to repay.
Then, add your short-term and long-term liabilities to get your net liability – all the shit you owe.
Finally, add up all your assets. These include the cash you’ve saved in your emergency savings account, your money in individual and employer-sponsored retirement accounts and any other cash or investments you have every and anywhere.
Finally, subtract your net liabilities from your total assets. Do you have a positive or a negative balance? If you have a positive balance, great! If you have a negative balance, don’t feel bad. At least you know, and . . . . “knowing’s half the battle.” It’s a GI Joe cliché, but it’s true.
If you have a negative balance, don’t fret, mon frere. You may currently have a negative net worth, but the best way to chart a successful financial roadmap is to, like NASA, know where you’re starting.
Congrats! Soon you’ll know where you are.
Whether your goal is to go from a positive to a negative net worth or to increase your net worth, you’re better prepared to achieve your goal than you were 886 words ago.
To make charting your financial roadmap easier, click the button below to get your free copy of our nifty Current Financial Snapshot Worksheets. They’ll make crunching the numbers above easier and the start of your financial roadmap clearer.